US gov't ends Chrysler investment; Fiat ups stake

By CHRISTOPHER S. RUGABER | July 21, 2011 | 4:00 PM EDT

WASHINGTON (AP) — The U.S. government no longer owns a piece of Chrysler.

Italian automaker Fiat SpA paid $560 million for the government's remaining 98,000 shares of Chrysler Group LLC, the U.S. Treasury Department said Thursday. Fiat has run the company since it emerged from bankruptcy protection in 2009.

U.S. taxpayers gave $12.5 billion to Chrysler and its financing arm after the recession hampered auto sales and brought Chrysler and General Motors Co. to the brink of collapse. The funds came from the government's $700 billion bank bailout fund.

Under a bankruptcy deal, Fiat received a 20 percent stake in Chrysler for taking over management of the Detroit carmaker. The Italian automaker has gradually raised its stake in Chrysler, and Thursday's purchase of the last U.S. shares, along with a small stake held by Canada, means Fiat owns 53.5 percent.

Now that Fiat has majority control of the company, CEO Sergio Marchionne, who runs both carmakers, plans to consolidate management of the companies. But he faces a thorny political decision of where to place the corporate headquarters. Fiat is Italy's largest employer and a source of national pride. U.S. politicians are likely to be upset if the new company is based in Turin, Italy, where Fiat is headquartered.

Chrysler has made a remarkable turnaround from two years ago, when it was bailed out. After cutting costs and reviving sales of Jeep, Chrysler, Dodge and Ram vehicles, the company earned net income of $116 million in the first quarter. It is forecasting profit of $200 million to $500 million this year. The Auburn Hills, Mich., company is scheduled to report second-quarter results on Tuesday.

Of the original Chrysler bailout, $11.2 billion has been repaid. The U.S. Treasury Department says it likely won't recover the remaining $1.3 billion.

Chrysler has also repaid $5.1 billion in other loans from the government.

Fiat's stake in Chrysler is likely to rise to 58.5 percent later this year when it begins making a small car in the U.S. that gets 40 miles per gallon of gasoline, a benchmark set by the U.S. government when Fiat took over Chrysler.

The remaining 41.5 percent of Chrysler is owned by a union trust fund for retiree health care. The company plans an initial public stock offering, perhaps in 2012, so the United Auto Workers trust can sell the stock.